Can corporations safeguard labor and human rights?

Susan Ariel Aaronson, Yale Center for the Study of Globalization, Washington

A common criticism of free trade is that it fattens the coffers of multinationals, while trampling on the rights and livelihoods of workers, local small producers, and indigenous populations.

Though multinationals gain no explicit rights under trade agreements, they have clearly benefited from the economies of scale reaped through 56 years of multilateral trade liberalization. Should multinationals be asked to take on certain responsibilities in return for such trade benefits?

Increasingly, Americans purchase goods manufactured in countries where human rights and labor rights are inadequately protected. Thus, it is important that trade agreements not only encourage trade, but also help developing countries safeguard those rights. In the last 20 years, policymakers have devised a wide range of strategies to address this problem.

For example, they have attached side agreements on labor and the environment to NAFTA and funded projects to train developing country officials in how to regulate the environment and the workplace.

Policymakers could complement these approaches with a new approach that links trade agreements or trade policies to voluntary corporate social responsibility (CSR) initiatives.

Companies can adopt corporate or sectoral codes of conduct or disclosure mechanisms that provide information to investors on the companies' social and environmental practices. They can also implement certifications or audits by civil society groups or firms hired to assess these social and environmental practices and ensure they are humane and sustainable.

In an April poll of 1,000 U.S. business leaders, Wirthlin Worldwide found 92 percent of those polled believe that CSR practices are an "important" component of business strategy, while 62 percent said they are "very important".

Still, it will not be easy to link voluntary CSR initiatives and trade agreements. CSR initiatives are soft law, whereas trade agreements are key elements of international law that regulate the behavior of governments.

Policymakers must find ways to link CSR initiatives and trade agreements without violating a key principle of the WTO regime -- most favored nation (MFN) treatment.

In the U.S. and other countries where transnational corporations are based, government officials are beginning to link voluntary CSR initiatives to trade policies and to trade agreements.

For example, the Dutch government requires all of its firms that want access to taxpayer-subsidized export credits to state they adhere to OECD Guidelines on CSR practices.

The Guidelines are recommendations by governments to multinational enterprises addressing business conduct in employment, human rights, the environment, and technology. Some 38 nations, including the U.S., adhere to the Guidelines. The European Union promotes the OECD Guidelines and calls on its firms to adhere to them in its bilateral agreements.

The Bush Administration has also included CSR language in its bilateral trade agreements (e.g. Chile, Singapore and CAFTA), but it has not specified any particular CSR strategy.

The administration has also supported the first explicit link of a voluntary CSR initiative (a certification that human rights were not abused in the production of diamonds) to a trade waiver under the WTO. U.S. support of this international endeavor is crucial because the U.S. is the world's largest market for diamonds.

After the UN identified allegations of corporate complicity in human rights violations related to diamond production, the diamond industry developed an industry-wide certification designed to ensure that diamond trade would not fuel conflicts and human rights violations in the mining or production of diamonds.

In 2002, the Bush Administration pressured Congress to pass legislation allowing the U.S. to participate in this waiver.

The Bush Administration should do more. First, they should encourage companies to adopt the most widely accepted CSR initiatives and to build their codes or CSR strategies on these initiatives. These include the OECD Guidelines, the UN-supported Global Reporting Initiative (guidelines for reporting on the economic, environmental, and social dimensions of multinational corporations), and the International Labor Organization (ILO) Declaration (a voluntary code of conduct relating to the labor and social aspects of multinational corporations).

Secondly, the U.S. should be open to other instances where a waiver from WTO obligations may be useful to prevent trade built on conflict and human rights violations. Such instances are rare, but they do happen.

Third, U.S. policymakers may find a link between CSR initiatives and trade particularly useful in China. As China is a WTO member, the U.S. can't develop CSR strategies that violate the most favored nation treatment.

In April, the U.S.-China Joint Commission on Commerce and Trade set up a new working group to examine policy issues that arise as China moves from a planned to a market economy.

The two nations also announced a new labor rights dialogue aimed at helping China implement ILO core labor standards. The U.S. could urge its allies and fellow investing nations to press their multinationals to adhere to the ILO Declaration in China. They could ask U.S. companies to help their suppliers adhere to Chinese labor law by posting Chinese labor law in their factories. These companies should also require that their suppliers hold discussions with their workers about their rights under Chinese labor law. Several U.S. companies already do this.

In these times, when America's credibility on human rights has been seriously damaged during the conduct of its war on terror, it is important that Bush Administration officials do everything they can to promote human rights in other areas. As American corporations are key agents of globalization, ensuring that they act responsibly would be a step forward.

The writer is Senior Fellow and Director of Globalization Studies at the Kenan Institute, Kenan Flagler Business School, University of North Carolina.